Energy News: Heat Wave Prices, Value of Renewables & 3 Trends

Jul 19

Today’s energy news covers 3 major areas of interest: first, we report on the impact of this week’s east coast heat wave on day-ahead, real time and forward energy prices; second, Greentech Media reported on a new Carnegie Mellon study that explores the value of renewables based on the fuel mix of different US regions; and, finally, some observations from Amory Lovins on 3 major energy trends to watch, reported in the Rocky Mountain Institute’s recent newsletter.

Did this week’s high temperatures in the East overheat energy markets?

The answer is, perhaps not surprisingly, yes and no. The NY Independent System Operator called on capacity and emergency demand response programs both Thursday and today (Friday) this week across the state of NY, in all zones. This means that the system was constrained and customers needed to contribute to system reliability by reducing their load.

Real time prices on Wednesday and Thursday spiked in some hours to over $800/MWh.

Day-ahead prices, the price that most customers will pay if you’re on an index rate, reached highs of over $200-300/MWh for some hours—but didn’t get much higher. Forward energy curves, on the other hand, remained largely stable or even declined (as you can see from this graph). Forward markets certainly would have already accounted for summer heat, to be sure, but it also suggests that the medium- long term market view is that there’s plenty of capacity, available gas and perhaps, to the extent heat would create a forward price spike, there’s more potential for forward market price drops in the future—once we get through the heat wave.


Forward prices remained relatively stable despite this week's heatwave


Bottomline for businesses: Businesses who pay an index rate will experience some bill increases in the next month. Next week, we will have more analysis of the potential impacts of higher real time/day ahead costs on business energy bills. For those of you on an index, there may be a forward buying opportunity in the next several weeks.


Locational value of renewables

Greentech Media reported on a recently-published study conducted by Carnegie Mellon University in which the researchers compared health, environmental, and climate benefits of solar and wind projects in different regions of the US. The article, titled “Why is a Solar Panel in NJ 15X More Valuable than One in Arizona”, summarizes the report, which was published in Proceedings of the National Academy of Sciences. The report looks at the fuel make-up of different regions and then assesses the benefits of offsetting grid power in those regions. Here’s an example from the article:

A wind turbine in West Virginia displaces twice as much CO2 as the same turbine would in California.

Coal-intensive regions of the country receive a greater benefit from installing solar and wind than relatively more “clean” regions like California. A wind turbine in these regions primarily displace coal, rather than relatively cleaner natural gas or hydro.

The implications for businesses is that there may be a real benefit to buying renewable power or renewable credits that originate in another region of the country. First, your purchase will create a market signal that supports development of renewable projects in that region. Second, you may find that you do not need to buy as many credits from a coal-intensive region as you would from your local market in order to have a significant carbon offset impact. (Hat tip to Tim Treadwell and the sustainability team at Juice Energy for figuring out this benefit to Juice customers back in 2006-2007.)

Bottomline for businesses: Be smart about how you invest your renewable energy dollar if you’re planning to buy renewable energy or do a renewables project. Buying the offsets, or encouraging investment in renewables from a project that is not in your home state or region may have meaningful carbon benefits. Be sure you do a thorough analysis in any case, so you can provide your stakeholders with a solid understanding of the carbon, health and environmental benefits of your decision.

Amory Lovin’s 3 Major Energy Trends to Watch

Take a look at this article published in Rocky Mountain Institute’s recent newsletter by Amory Lovins. The article is called “Three Major Energy Trends to Watch”. The 3 trends that Amory references are the following:

  1. The acceleration of investments in and benefits from energy efficiency. This is particularly important to the buildings industry, which is responsible for ¾ of electricity consumption in the United States. The convergence of building codes, utility programs and spending is on track to triple US energy productivity by 2050, according to Lovins.
  2. Renewables making headway. US solar prices are low enough, in some states, to beat the cost of utility-delivered power. New installed capacity of wind power has outpaced natural gas installed capacity in some quarters over the past year.
  3. Distributed power. A recognized shift from fossil fuels to renewable investment and from centralized to distributed power investments may end up resulting in what Lovins calls a “more resilient grid architecture”. This is good news for our ability to invest in and manage energy infrastructure—allowing us to better respond to power disruptions, storm recovery and, ideally, delivering a lower cost infrastructure.

Bottomline for businesses: These trends favor customers—and will, we expect, help you to reduce the cost of running your facilities. Understanding the cost implications of these trends is a focus of our business—the more you know about the cost implications of these trends, the more wisely you invest.

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